Talk of a significant renegotiation of the post-Brexit trade deal is a “red herring”, experts on the UK-EU relationship have said.
A review of the EU-UK Trade and Cooperation Agreement (TCA) is due for 2026, and while the wording around what this entails is vague within the deal, traders and politicians should not be expecting a complete renegotiation to take place, according to Joël Reland, a research associate at UK in a Changing Europe.
He said that the review had been “talked up” by some Labour politicians last year as a “rhetorical device” to show that the party was keen to enhance the UK and EU’s trading relationship, but within the confines of the TCA negotiated by Boris Johnson’s government in 2020.
A “light touch” approach is “the EU’s clear preferred position”, he said, while adding that there was plenty of scope for enhancing the trading relationship beyond the 2026 review, including ad hoc agreements on issues such as youth mobility and sanitary controls.
Trade-offs
Reland was speaking on a webinar on the future of the post-Brexit trade deal hosted by the Institute of Export & International Trade (IOE&IT) yesterday (15 May).
He said the TCA had “unequivocally created new trade frictions”, with goods trade particularly affected. He warned that things could get worse before they get better for UK traders, noting that the UK is still in the process of implementing full border controls on EU goods entering the country.
However, he said that a Labour government will have scope to enhance the trading relationship within the confines of the TCA, and said it wouldn’t need to wait until 2026 to do so. He suggested it could either approach forging closer ties by proposing “one-off” ad hoc agreements on particular issues – like the EU did recently with its offer on youth mobility, which the UK rejected – or by packaging multiple changes together. The latter option could create “more trade-offs” in future talks, giving the UK the chance to increase its “negotiating leverage”.
IOE&IT EU director Fergus McReynolds said that businesses could learn more about what the UK and EU’s current priorities are for the relationship by reviewing recent reports from Domestic Advisory Groups (DAGs) on each side.
When asked about what the UK government’s priority should be in reference to the future UK-EU relationship, a majority of the delegates said “trade facilitation within the TCA” (54%) – more than double the proportion that said the 2026 review should take precedence.
Change is in the air
While the date of the TCA review is set for 2026, the identity of the main players in these talks is not yet known, with parliamentary elections taking place in Europe this summer and a general election in the UK to take place before January 2025.
However, Jill Rutter, a senior research fellow at UK in a Changing Europe, cited psephologist Sir John Curtice’s claim that it is “99% probable that Keir Starmer will be the next prime minister”, while McReynolds noted that a shift to the right is probable in the European elections, albeit with the European People’s Party (EPP) likely to remain the largest grouping.
In a UK context, Rutter said that a Labour government would have “none of the same set of baggage” that the Conservatives currently have in relation to Europe, with “no equivalent of the big Conservative Eurosceptic wing”. This could give a Starmer administration “more room for manoeuvre”, although he has ruled out the UK rejoining the customs union or single market.
She noted that it’s likely that Labour would look at “improving the relationship” by “reducing some frictions”, citing a possible deal over mutual recognition of qualifications as an example. However, she said it’s unlikely to be known what specific actions a Labour government will take to enhance the trading relationship until “we’re on the other side of the election”.
When discussing the European elections, McReynolds also said that it will be a while until it’s clear what the priorities of the new European parliament will be, although he said president Ursula von der Leyen is the “frontrunner” to retain her role atop the European Commission.
“The focus of the EU for the second half of this year will be the constitution of parliament, the creation of the groups, the elections of each of the key post holders and then the formation of the Commission,” he said. This process is likely to be completed in December he said, meaning that meaningful UK-EU talks won’t take place until 2025.
The UK is not likely to be a priority for the new European parliament, he added, saying that “war on the continent” and the “impact of the US election” will take precedence.
Auto value chains
In regard to the sorts of specific issues within the TCA that have been addressed since the deal came into force at the start of 2021, Alessandro Marongiu, senior trade policy manager at the Society of Motor Manufacturers and Traders (SMMT), spoke about the postponement of changes to rules of origin for electric vehicle (EV) batteries.
Origin requirements were due to change at the start of this year, which would have led to a 10% increase in tariffs for several auto firms that had not yet adjusted their battery production processes.
“Phasing in tougher rules of origin requirements at the start of this year would have been completely unworkable,” he said, saying that the increased levies would have cost the industry £4.3bn between 2024 and 2026. The UK and EU struck an agreement to postpone the introduction of the new rules until January 2027. He said manufacturers will need to localise the production of batteries and their component parts ahead of the new deadline.
“I cannot tell if the industry will be in good shape by the end of 2026 to meet these very challenging origin rules,” he said.
